According to a 2016 government report, a new franchised business opens somewhere in the United States every eight minutes of every business day. Franchises are highly popular because they offer many advantages for both the franchisee and franchisor.Standardized bookkeeping procedures, which enable everyone involved to compare apples to apples, are one of the simplest ways to fully leverage those advantages.
Look at Both Sides of the Ledger
Both entrepreneurs and franchisors have a lot to gain from the franchise business model. For an entrepreneur who wants to become a franchisee, it's a great way to jumpstart a new business. The list of benefits includes:
- Instant brand-name recognition, which helps secure both bank loans and customers
- Access to a proven business model, which helps the franchisee avoid costly rookie mistakes
- Economies of scale that come with buying supplies in bulk quantities
From the franchisor's perspective, franchising enables the company to expand its reach (and its revenues). In addition, finding franchisees who have connections in local communities can help establish the franchisor's brand in new markets.
The franchisor can use standardized bookkeeping to capitalize on the efficiencies that the franchise model offers. The franchisor can start by establishing a set of procedures for tracking every dollar that comes in or goes out.
Standardize the Chart of Accounts
There are many different ways to document a company's financial transactions. You can choose either cash or accrual accounting, for example. And while both methods can work well, what does not work is for a franchisee to use one method while the franchisor uses the other.
That's why it's critical for the franchisor to define at the outset how the franchisee should establish their chart of accounts. That puts franchisor and franchisee on the same page — literally — right from the beginning. Which, in turn, makes it easier to resolve disputes or misunderstandings or to avoid them in the first place.
Basically, a standardized chart of accounts serves as a template that saves the new franchisee from having to figure out for themselves how to keep the books. And that, in turn, helps establish a solid foundation of communication with the franchisor.
Bookkeeping for Better Financial Insight
With standardized bookkeeping procedures in place, it's less work for the franchisor to monitor the franchisee and collect the proper payment for any fees or royalties that are due. If a particular franchise is falling short of its revenue projections, for instance, a standardized chart of accounts can provide insight as to why.
The franchisor can quickly determine if a franchisee's expense ratios are out of whack, for example. Maybe the franchisee is paying too much for company vehicles or insurance. Or maybe they're not charging enough for their product or service based on their location. Regardless, the franchisor can share the wisdom of their experience with the franchisee — provided they're using the same set of numbers.
In addition to establishing a standardized chart of accounts and bookkeeping processes, franchisors can help ensure that the franchisees’ books will be done on time and in a consistent fashion by choosing a preferred outsourced bookkeeping company. When one bookkeeping company does the bookkeeping for all the franchisees, that company can ensure that the books are done in a consistent manner, making it easier for the franchisor to digest the data.
For the franchisee, it makes a lot of sense to outsource their bookkeeping. Standardized bookkeeping procedures can set a franchisee up for success, but only if the franchisee executes them properly. Owners of new businesses, including franchises, often take on multiple responsibilities in the interest of saving money. But even a business leader with a facility for bookkeeping might find they simply don't have time to keep up with it. In addition to running the risks of any other business owner who does their own books, some franchisees face fines for missed reporting deadlines.
From providing easier financial insight to streamlined reporting, establishing standardized bookkeeping and outsourcing bookkeeping to a recommended bookkeeping services provider can help the franchisor and franchisees improve their efficiency.